Outlook for U.S. Consumer Spending Raised on Jobs

Outlook for U.S. Consumer Spending Raised on Jobs, Survey Says

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By Bob Willis and Alex Tanzi

May 11 (Bloomberg) -- The U.S. economic recovery is takingon a life of its own as more jobs, rising wealth and easiercredit give Americans the means to keep spending, according toeconomists surveyed by Bloomberg News.

Consumer purchases will grow at a 3 percent annual pace inthe second quarter, according to the median estimate of 61economists surveyed from April 29 to May 10, up from the 2.5percent clip projected last month. The economic growth outlookfor the quarter and the rest of the year also brightened.

The strongest employment gain in four years signals theworld’s largest economy is evolving away from dependence ongovernment stimulus toward an enduring rebound, making it moreresilient to shocks like the European debt crisis. A lack ofinflation and the risks to financial markets posed by growinggovernment debt here and abroad means the Federal Reserve willbe slower to raise interest rates than previously thought.

“Everything is cranking up a notch,” said NarimanBehravesh, chief economist at IHS Global Insight in Lexington,Massachusetts, who raised forecasts for spending and growth.“Once recoveries build up a head of steam, they tend to becomemuch more self-sustaining.”

Payrolls climbed by 290,000 workers in April, the most infour years, and the unemployment rate unexpectedly rose to 9.9percent as thousands of job seekers entered the labor forcelooking for work. Private payrolls rose by 231,000, and factoryemployment climbed by 44,000, the most since 1998.

Unemployment Forecast

Unemployment will end the year at 9.4 percent, according tothe survey median, the same as forecast a month ago.

Economists raised consumer spending forecasts for theentire survey horizon, spanning through 2012. Householdpurchases, which account for about 70 percent of the economy,will grow 2.6 percent this year, the most since 2007, the surveyshowed. Purchases dropped 0.6 percent in 2009 and 0.2 percent in2008, the first back-to-back decline since the 1930s.

“The consumer is back in the game and employment growth isgoing to be strong this year,” said Kurt Karl, chief U.S.economist at Swiss Reinsurance Co. in New York.

The 71 percent rebound in the Standard & Poor’s 500 Indexfrom a 12-year low reached in March 2009, and a firming in homevalues are helping improve the spending outlook, economistssaid. Also, 14 percent of banks surveyed last quarter said theywere willing to extend consumer installment loans thoughinstruments such as credit cards, according to a Fed data, themost in four years.

MasterCard Inc., the world’s second-biggest electronicpayments network, posted a first-quarter profit that beat mostanalysts’ estimates as it held down costs and spendingrebounded.

‘Self-Sustaining’

“The global economy has reached a self-sustainingmomentum,” Chief Executive Officer Robert W. Selander said lastweek in a conference call with analysts.

Stocks rallied around the world yesterday, sending the MSCIWorld Index up the most in 13 months, after the 16 euro nationsagreed to lend as much as 750 billion euros ($962 billion) tothe most indebted countries to avert spillover from the Greekdebt crisis. The Standard & Poor’s 500 Index surged 4.4 points,erasing almost two-thirds of last week’s 6.4 percent plunge.

The improved outlook for consumers will probably boostgrowth. Economists raised their forecasts for the gain in grossdomestic product this year to 3.2 percent from 3 percent a monthago.

Preferred Gauge

The central bank’s preferred price gauge, which tracksconsumer spending and excludes food and fuel costs, will rise1.2 percent this year, the smallest gain since 1962, accordingto this month’s survey median.

The lack of inflation and the European crisis may spur theFed to be more cautious in raising the target rate for overnightloans between banks from its current range of zero to 0.25percent, economists said this month. The rate will rise to 0.5percent by December, down from an earlier forecast of 0.75percentage point, according to the survey median forecast.

“The fiscal tightening implicit to the remedy forsovereign debt concerns ought to help keep inflation risks wellcontained and moderate the Fed’s early steps toward normalizingmonetary policy,” said John Lonski, chief economist at Moody’sCapital Markets Group in New York, who was among those loweringFed interest-rate forecasts. “It will help convince the Fed ofthe need to proceed more cautiously with rate hikes.”

The recovery is “likely to be moderate for a time,”central bankers said in their latest policy statement on April28 as they reiterated a commitment to keep the benchmark lendingrate low “for an extended period.”

To contact the reporters on this story:Robert Willis in Washington at [e-mail];Alex Tanzi in Washington at [e-mail]

Last Updated: May 11, 2010 00:00 EDT